New stress test regulations prompt Canadian homebuyers to increase budgets, re-evaluate home features or delay their purchase

Toronto/Kelowna April 10, 2018 // RE/MAX has released its 2018 Spring Market Trends Report, revealing that more than one in four Canadian homebuyers are feeling pinched by the stress test, according to a survey conducted by Leger. However, projections for the spring market show optimism, with most markets expected to remain stable or improve.

The average residential sale price in the Greater Toronto Area dropped to $753,747, down almost 10 per cent from $834,144 in January and February of 2017. With move-up buyers driving the market — many of whom are making their second or third transition — alongside a booming condominium market, prices should continue to soften throughout the year. Areas surrounding the GTA, including Brampton and Durham region, continue to be viable options for young families seeking affordability. Not all regions in Ontario are being affected like the GTA. In Ottawa, the average residential sale price in January and February was $388,289, up four per cent from $373,841 during the same period in 2017.

At the same time, the average residential sale price in Western Canada continues to increase. Greater Vancouver saw prices increase almost 11 per cent in January and February to $1,051,513, up from $950,184 during the same period in 2017. Despite reduced unit sales, prices are expected to continue rising. While Victoria is mostly a seller’s market compared to Greater Vancouver, it has also seen an increase in average residential sale price, which was $831,000 in January and February this year compared to $761,000 during the same period in 2017.

“While the stress test did not impact Western Canada’s major markets as much as other parts of the country, the foreign buyer’s tax and proposed speculation tax in B.C. have remained a concern for buyers,” says Elton Ash, Regional Executive Vice President, RE/MAX of Western Canada. “In recent weeks, the speculation tax has actually made some buyers hold off on purchasing which may affect the housing market in the next few months.”

It is expected that government intervention and the stress test will continue to play a pivotal role in purchasing behaviour as we look to the months ahead. The Leger survey found that four in 10 buyers have had to compromise on their purchase, and almost one in three opted not to purchase altogether. One quarter of buyers compromised on the size of their home, while 18 per cent made concessions on the location of their home.

Despite these compromises, 55 per cent of homebuyers say they feel like they can purchase the type of home that suits their families’ needs compared to 46 per cent last year.

“The stress test, along with rising prices over the last two years, has contributed to the evolution of the Canadian homebuyer, and has prompted them to change their perceptions of ‘must-haves’ such as size and location,” says Christopher Alexander, Executive Vice President and Regional Director, RE/MAX INTEGRA Ontario-Atlantic Canada Region. “Homebuyers impacted by regulatory changes beyond their control have adapted to the circumstances and still, more than half feel like they can purchase the right home to suit their needs.”

In Alberta, first-time homebuyers looking for affordability in Calgary and Edmonton continue to drive the market forward, with single Millennials and young couples gravitating toward the relatively stable condominium market. The average residential sale price increased 1.4 per cent in Calgary to $481,775 in January and February of this year, up from $475,288 during the same period in 2017. Meanwhile in Edmonton, a wide variety of inventory offers good opportunities for buyers, resulting in a small increase in activity and stable year-over-year prices to start 2018. Interestingly, activity in Atlantic Canada experienced increased demand from first-time homebuyers, many of whom are young couples and families. At the same time, the condominium market is being driven by retirees who are looking to downsize. Prices continue to rise across most Atlantic markets, especially in Saint John where the average residential sale price in January and February this year was $201,328, compared to $168,956 during the same period in 2017.

New residential and commercial development projects in markets across the country are expected to fuel demand. Cities most impacted will include Edmonton, Kelowna, Victoria and Fraser Valley in the West and Windsor, London, Hamilton-Burlington, Barrie, Durham, Ottawa, Saint John and Halifax in Central and Eastern Canada.

Despite all of the factors involved, the spring market across most of the country is forecasted to strengthen as we head into the warmer months. Supply is still low in many markets, and while the prices may not reach the same levels as this time last year, we are expected to see continued healthy price appreciation from the earlier months of this year across many regions in the country.